The bounce has materialized, as anticipated. This almost had to happen given the vastly improved CoT structure for gold, the over sold levels of the stocks and the “puke” sentiment noted a couple weeks ago.
The first target on HUI is 180 (+/-). What we have going on there is a gap to be filled and a resistance area that has very clearly held support and provided resistance for the last 6 months.
So we have labeled the bounce as just a bounce toward the gap because that is all it is until it does something notable, technically. Breaking above the lateral resistance zone, taking out the SMA 50 and SMA 200 and finally, the January highs are what we’d call notable.
As you can see, that means Huey has a lot of work to do. If at any such time it takes out January’s 210 it would mark a higher high on an intermediate-term basis and would likely signal, in hindsight, a new bull market.
Meanwhile, gold vs. stock markets has bounced a bit but remains very depressed and long/short-term interest rate differentials are also very depressed. Those are holdout fundamentals for an ideal gold stock case.
Meanwhile, silver vs. gold has been leading the way on the bounce. This is something we would expect to go along with a rally. It has come up to a point that would be notable if crossed and held.
Here is the weekly view. Does this seem like an important level to you? Yes, me too.
Besides being a positive for the precious metals sector, a breakout in silver-gold above the very clear resistance zone and eventual up trigger of the moving averages would signal a new phase of inflationary concerns (and a Fed behind the curve).
That is not in play right now but we are at a decision point where either there will be failure (likely along with a USD rebound) or ‘success’, which we’ll define as a new cycle of inflationary expectations and the start of a general ‘inflation trade’.
Bottom Line
Gold stocks are bouncing toward the target of 180 +/- on HUI.
Important resistance levels to be overcome are 180 and then 210.
Gold and silver are rallying, with silver leading. This leadership is now right at a potential ‘Stop’ sign.
However, if it breaks through this level, the analysis will change to a more bullish orientation for not only the precious metals, but also a vast array of items that have been counter the US dollar. Similarly, if silver signals a major trend change vs. gold, we will also be on alert for an intermediate-term phase of weakness in USD as opposed to this being a short and violent corrective downturn with a continuing USD uptrend.
Until these parameters are broken (preferably with some positive signs in yields and gold/stock market ratios), the analysis remains as is.
